With Profits Bonds in Plain English

This week Aviva stated that they expect future With Profits Bond sales to come from direct marketing and affinity groups rather than through Independent Financial Advisers. As many IFAs have pointed out in various discussion on this news, its popularity amongst IFAs has waned for many reasons including its complexity and lack of transparency. In an effort to try and make it more transparent for someone thinking about investing in a With Profits Bond, I think that a truthful description of a With Profits Bond might read as follows;

* Your money is invested in a managed fund and what you get back depends on the performance of that managed fund.

* If you ask for a valuation when the value of your managed fund has fallen, we'll pretend it's actually risen in value so you feel better about it.

* If you actually want your money back, however, that's when we'll tell you what it's really worth.

* The pretend value assumes that you've had a nice steady return on the whole sum you invested. But when you think about it, that would be nonsense. How can we pay 7% to your salesman and your money still be worth the same you put in? It's laughable when you think about it, ha! ha! No, if you actually want your money back then obviously for you to get the pretend value not only does the managed fund have to have performed well but it's got to cover all those charges too.

* The assets in the managed fund will not be optimised to generate the best investment returns. Instead, we'll manage the fund so that when stock market values fall and we get nervous about the guarantees we've made to previous policyholders, we'll sell lots of shares because they may fall further. Only when values of shares have picked back up will we have the confidence to increase the allocation to shares at which point you'll not have fully participated in the rally like a normal managed fund would have.

* We should point out that if markets fall for a sustained period and the guarantees we've made to other policyholders are significant then the managed fund may turn into a fixed interest fund. The long term growth prospects and efficiency of this investment will be compromised for you and bare no resemblance to the investment you thought you were making, but at least all the other policyholders will be ok, that's the main thing.

* Oh, and about those guarantees. They're great if you die at a time when your managed fund is worth less than we pretended it was. Your relatives can then get the pretend value. Other than death, well, we've been stung for offering guarantees to other policyholders in the past so we're a bit stingy in that regard nowadays.

* Please also note that when we say "with profits" we also mean "with losses". The losses include things like paying fines for misselling previous policies. We know what you're thinking: if the shareholders benefitted from the misselling, why don't they pay the fines, right? Ha! Ha! Well, we can see what you're saying and the Finnacial Services Authority looked at that last year but we successfully lobbied them that this would be retrospective so we can still pay future fines for past misselling out of the fund and your return will suffer if we do.

Why don't they make a sales aid with these points on I wonder?